The Bank of England purchased only £22 million in bonds on Monday as part of its operation to calm the gilt market, the latest indication that the central bank has so far succeeded in halting a chaotic sell-off without spending anywhere near its maximum daily purchases of £5 billion.
The daily purchases began last Wednesday, as a drop in long-dated gilts threatened to spiral out of control, triggering a liquidity crisis among UK pension funds. The Bank of England has spent just £3.66 billion of a possible £20 billion in the first four days of the 13-day program, implying that the purchases are likely to fall far short of the potential £65 billion size.
Rohan Khanna, a rates strategist at UBS said, “This is the BoE sending a message that if it doesn’t look like we’re still in the middle of a crisis, they will be careful about how much they spend.”
Monday’s operation, in which the Bank of England rejected offers from investors seeking to sell £1.89 billion in gilts, came after a gilt rally fueled by the UK government’s U-turn on plans to eliminate the top rate of income tax.